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E&O Insurer Not Obligated to Defend One Agent Against Another

The U.S. Court of Appeals for the Sixth Circuit has ruled that an insurance carrier that provided an insurance professionals' errors and omissions liability insurance policy to an agency was not obligated to defend the agency in a suit brought by a competitor agency, where the suit only asserted claims for intentional wrongdoing.

The Case

In a Michigan state court, Mayfair Insurance Agency sued Matthew T. Szura & Co., operating under the name Szura Insurance Services, and Doug Charon, an insurance agent who previously had been affiliated with Mayfair, alleging that Mr. Charon had breached his confidentiality agreement and fiduciary duties when he left Mayfair, joined Szura, and sold Szura’s insurance products to Mayfair’s customers. Mayfair alleged that Szura had tortiously interfered with the confidentiality agreement in the Charon-Mayfair employment contract, as well as with Mayfair’s business relationships and expectancies, when Szura engaged Mr. Charon to sell its insurance products to certain Mayfair customers with whom Charon had developed a relationship while working at Mayfair.

Szura asked General Insurance Company of America for a defense pursuant to an insurance professionals errors and omissions liability insurance policy that General Insurance had issued to Szura. After General Insurance refused to defend Szura, Szura sought a declaration that the policy required General Insurance to defend Szura.

The district court entered judgment in favor of General Insurance, and Szura appealed.

The Policy

Section one of the policy, captioned “Insuring Agreements,” provided:

A. COVERAGE PROVISION:We will pay on behalf of the insured damages that the insured becomes legally obligated to pay because of claims made against the insured for wrongful acts arising out of the performance of professional services for others.C. DEFENSE PROVISIONWe have the right and the duty to defend the insured against any covered claim, even if such claim is groundless, false or fraudulent.... We have no duty to defend any claim not covered by this policy.

Section four of the policy provided:

“Claim” means a demand for money or professional services received by the insured for damages, including but not limited to the service of a lawsuit or the institution of arbitration proceedings or other alternative dispute resolution proceedings, alleging a wrongful act arising out of the performance of professional services.“Professional Services” means services performed for others in the Insured’s capacity as an insurance agent, insurance broker, insurance general agent, insurance managing general agent, surplus lines insurance broker, insurance consultant, insurance based risk management consultant or advisor, employee insurance benefits counselor, estate insurance planner, insurance claims administrator, insurance appraiser, insurance expert witness, insurance premium financier, notary public, instructor of insurance subjects, or board member of a nonprofit insurance professional association.

This policy does not apply to any claim ... arising out of any dishonest, fraudulent, criminal, or malicious act, error, or omission or acts of a knowingly wrongful nature committed by or at the direction of any insured. We will defend the insured against such claim unless or until the dishonest, fraudulent, criminal, malicious or knowingly wrongful act has been determined by any trial verdict, court ruling, regulatory ruling or legal admission, whether appealed or not. We do not have the duty to defend the insured in a criminal proceeding. This exclusion does not apply to any insured who did not commit, participate in, acquiesce to or remain passive after having learned of the dishonest, fraudulent, criminal, malicious act, error, or omission or knowingly wrongful conduct.

The Circuit Court’s DecisionThe Sixth Circuit affirmed.

The circuit court reasoned that General Insurance was required to defend Szura against all arguably covered claims “made against the insured for wrongful acts arising out of the performance of professional services for others.” It noted that, given the definition of the term “wrongful acts,” the policy covered “only liability for negligent conduct.”

It then ruled that a policy covering “negligent acts, errors or omissions” did not cover intentionally wrongful conduct. Finding that Mayfair had alleged only intentional conduct in its claims against Szura for tortious interference with a contract and tortious interference with business relationships, and conspiracy to tortiously interfere with Mayfair’s contract rights and business relationships, the circuit court concluded that General Insurance had no duty to defend Szura.